U.S. Monetary Policy and the Global Financial Cycle

US monetary policy shocks induce comovements in the international financial variables that characterize the 'Global Financial Cycle'. A single global factor that explains an important share of the variation of risky asset prices around the world decreases significantly after a US monetary tightening. Monetary contractions in the US lead to significant deleveraging of global financial intermediaries, a decline in the provision of domestic credit globally, strong retrenchments of international credit flows, and tightening of foreign financial conditions. Countries with floating exchange rate regimes are subject to similar financial spillovers

Chapter 1 - The Global Financial Cycle

We review the literature on the empirical characteristics of the global financial cycle and associated stylized facts on international capital flows, asset prices, risk aversion, and liquidity in the financial system. We analyze the co-movements of global factors in asset prices and capital flows with commodity prices, international trade, and world output as well as the sensitivity of different parts of the world to the Global Financial Cycle. We present evidence of the causal effects of the monetary policies of the US Federal Reserve, the European Central Bank, and of the People's Bank of China on the Global Financial Cycle. We then assess whether the 2008 financial crisis has altered the transmission channels of monetary policies on the Global Financial Cycle. Finally, we discuss the theoretical modeling of the Global Financial Cycle and avenues for future research

The predictability of stock market volatility in emerging economies: Relative roles of local, regional, and global business cycles

This paper explores the role of business cycle proxies, measured by the output gap at the global, regional, and local levels, as potential predictors of stock market volatility in the emerging BRICS nations. We observe that the emerging BRICS nations display a rather heterogeneous pattern when it comes to the relative role of idiosyncratic factors as a predictor of stock market volatility. While domestic output gap is found to capture significant predictive information for India and China particularly, the business cycles associated with emerging economies and the world in general are strongly important for the BRIC countries and weakly for South Africa, especially in the postglobal financial crisis era. The findings suggest that despite the increase in the financial integration of world capital markets, emerging economies can still bear significant exposures to idiosyncratic risk factors, an issue of high importance for the profitability of global diversification strategies.http://wileyonlinelibrary.com/journal/for2022-01-21hj2020Economic